IRS denies 501(c)(3) status to an equine-events club because its horsemanship competitions serve a substantial recreational purpose

Plain-English summary

A club that runs equine speed events and horsemanship competitions applied for tax-exempt charitable and educational status under IRC § 501(c)(3) using the short Form 1023-EZ, and the IRS denied it. To qualify, an organization must be operated exclusively for exempt purposes, which means any non-exempt purpose that is more than insubstantial destroys the exemption. The IRS found that while the club's events might have some educational value, they mainly serve a recreational purpose that is not insubstantial, so the club fails the operational test. The IRS compared the club to organizations in Rev. Rul. 67-216 (agricultural fair, exempt) and Rev. Rul. 68-224 (community festival, exempt only under § 501(c)(4)), and to court decisions denying exemption to a chess association and a science-fiction society whose activities were substantially recreational. Because the club filed no protest to the earlier proposed denial, this is the final adverse determination. Donations to the club are not deductible.

Ruling snapshot

• Question: Does a club that runs equine speed and horsemanship events qualify for exemption under IRC § 501(c)(3)?
• Outcome: Denied (final adverse determination; no protest filed)
• Key authorities: IRC § 501(c)(3); Treas. Reg. § 1.501(c)(3)-1(a)(1), (c)(1); Better Business Bureau of Washington, D.C. v. United States, 326 U.S. 279 (1945); Rev. Rul. 67-216; Rev. Rul. 68-224; Minnesota Kingsmen Chess Association v. Commissioner; St. Louis Science Fiction Ltd. v. Commissioner

Full text (IRS public release)

Department of the Treasury                          Date: 04/04/2022
Internal Revenue Service
Tax Exempt and Government Entities
P.O. Box 2508
Cincinnati, OH 45201

                                                    Employer ID number:

                                                    Person to contact:

Number: 202226018
UIL: 501.03-30, 501.35-00
Release Date: 7/1/2022

Dear

This letter is our final determination that you don't qualify for exemption from federal income tax under Internal
Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(3). Recently, we sent
you a proposed adverse determination in response to your application. The proposed adverse determination
explained the facts, law, and basis for our conclusion, and it gave you 30 days to file a protest. Because we
didn't receive a protest within the required 30 days, the proposed determination is now final.

Because you don't qualify as a tax-exempt organization under IRC Section 501(c)(3), donors generally can't
deduct contributions to you under IRC Section 170.

We may notify the appropriate state officials of our determination, as required by IRC Section 6104(c), by
sending them a copy of this final letter along with the proposed determination letter.

You must file the federal income tax forms for the tax years shown above within 30 days from the date of this
letter unless you request an extension of time to file. For further instructions, forms, and information, visit
www.irs.gov.

We'll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the
enclosed Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our
proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how
to notify us. If you agree with our deletions, you don't need to take any further action.

If you have questions about this letter, you can call the contact person shown above. If you have questions
about your federal income tax status and responsibilities, call our customer service number at 800-829-1040
(TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933.

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:
Letter 437
Redacted Letter 4034
Redacted Letter 4038

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S

------------------------------------------------------------------------

Department of the Treasury
Internal Revenue Service
PO Box 2508
Cincinnati, OH 45201

                                                    Date: 01/18/2022

                                                    Employer ID number:

                                                    Person to contact:
                                                    Name:
                                                    ID number:
                                                    Telephone:
                                                    Fax:

Legend:                                             UIL:
X = Date                                            501.03-30
Y = State                                           501.35-00

Dear

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(3).
This letter explains the reasons for our conclusion. Please keep it for your records.

Issues

Do you qualify for exemption under IRC Section 501(c)(3)? No, for the reasons stated below.

Facts

You submitted Form 1023-EZ Streamline Application for Recognition of Exemption Under Section 501(c)(3) of
the Internal Revenue Code.

You attested on Form 1023-EZ that you are organized and operated exclusively to further charitable and
educational purposes. You also attested that you have not conducted and will not conduct prohibited activities
under IRC Section 501(c)(3).

During review of your Form 1023-EZ, detailed information was requested supplemental to your attestations.

You were formed as a corporation on X in the State of Y. You conduct equine activities which include, but are
not limited to, equine speed events and horsemanship events. In the future you hope to expand your events to
include sanctioned barrel races as well. Individuals from age and up, both male and female, and from areas
throughout Y, participate in your events. Events are usually held in the evening, but generally take place on a
weekend (2-day event). Events are offered from through in . During this time,
approximately events are offered based on weather conditions and other conflicting scheduled horse shows.

To promote your events, you provide equine activities and opportunities like trail rides, learning about horse
sportsmanship, and promotion of equine activities in general that are open to the general public. You also
promote your club through community events like parades and individual community involvement.

Your revenue comes from membership fees, registration (for events) fees and sales of promotional items.
Expenses are related to operating the events.

Law

IRC Section 501(c)(3) provides, in part, for the exemption from federal income tax to organizations organized
and operated exclusively for charitable, religious or educational purposes, where no part of the net earnings
inures to the benefit of any private shareholder or individual.

Income Tax Regulations ("Regulations") Section 1.501(c)(3)-1(a)(1) of the states that in order to qualify under
Section 501(c)(3) of the Code, an organization must be both organized and operated exclusively for one or more
exempt purposes. If an organization fails to meet either the organizational or operational test, it is not exempt.

Treas. Reg. Section 1.501(c)(3)-1(c)(1) states that an organization will be regarded as "operated exclusively" for
one or more exempt purposes only if it engages primarily in activities which accomplish one or more of such
exempt purposes specified in Section 501(c)(3) of the Code. An organization will not be so regarded if more
than an insubstantial part of its activities is not in furtherance of an exempt purpose.

Rev. Rul. 67-216, 1967-2 C.B. 180 - A nonprofit organization formed and operated exclusively to instruct the
public on agricultural matters by conducting annual public fairs and exhibitions of livestock, poultry, and farm
products qualified for exemption from Federal income tax under Section 501(c)(3) of the Code. The
organization's activities and exhibits are planned and managed by or in collaboration with person whose
business it is to inform and instruct farmers and the general public on agricultural matters (i.e., home
demonstration agents, county agricultural agents), and the resulting displays are designed to be instructive. The
presence at the fair of recreational features such as midway shows, refreshment stands, and a rodeo are
incidental to the fair's overall educational purpose.

Rev. Rul. 68-224, 1968-1 C.B. 262 - An organization that conducts an annual festival centered around regional
customs and traditions is determined to qualify for exemption under Section 501(c)(4) of the Code. The festival
takes place in an agricultural region where interest in horses and Western traditions runs high and enjoys the
broad involvement of local citizens. It typically features a banquet or barbecue, a parade made up of local
organizations and floats depicting community history, various contests relating to dress and costumes traditional
of the area, and a rodeo. The revenue ruling holds that, in carrying on these activities, the organization provides
recreation for the community and generally promoted civic betterments and social improvements.

In Better Business Bureau of Washington, D.C., Inc v. United States, 326 U.S. 279 (1945), the Supreme Court
of the United States interpreted the requirement in section 501(c)(3) that an organization be "operated
exclusively" by indicating that an organization must be devoted to exempt purposes exclusively. This plainly
means that the presence of a single non-exempt purpose, if substantial in nature, will destroy the exemption
regardless of the number and importance of truly exempt purposes.

In Minnesota Kingsmen Chess Association v. Commissioner, T.C. Memo. 1983-495, the organization sponsored
chess tournaments, provided chess magazines and books to libraries, offered free chess lessons, and published a
newsletter that primarily contained reports of past tournaments and announcements of future ones. The
petitioner sought exemption under Section 501(c)(3) of the Code because its purposes and activities were
described as educational. The court found that the promotion of chess tournaments furthered a substantial
recreational purpose, even though individual participants may have received some educational benefits.

In St. Louis Science Fiction Limited v. Commissioner, T.C. Memo. 1985-162, the Tax Court held that a science
fiction society failed to qualify for tax-exempt status under Section 501(c)(3) of the Code. Although many of
the organization's functions at its annual conventions (the organization's principal activity) were educational, its
overall agenda was not exclusively educational. A substantial portion of convention affairs were social and
recreational in nature.

Application of law

Your equine and horsemanship events may have some educational value, but they further a recreational purpose
which is not insubstantial. Thus, your activities further a nonexempt purpose. Therefore, you do not meet the
operational test under IRC Section 501(c)(3) and cannot be recognized for exemption. (See Treas. Reg. Secs.
1.501(c)(3)-1(a)(1) and 1.501(c)(3)-1(c)(1)).

Unlike the organization granted exemption in Rev. Rul. 67-216, your recreational purpose of offering
horsemanship competitions and shows outweigh any exempt purpose that you may offer. There is no evidence
that you have any educational or other exempt element to your operations. You are organized and operated to
provide recreation for the community, which is similar to the organization in Rev. Rul. 68-224. However, that
organization was not granted exemption under Section 501(c)(3) of the Code.

As noted in Better Business Bureau of Washington D.C., exemption under Section 501(c)(3) of the Code cannot
be granted when an organization has any non-exempt purpose which is more than insubstantial in nature. This
is further clarified in both Minnesota Kingsmen Chess Association and St. Louis Science Fiction, where the
substantial recreational purposes prohibited exemption under Section 501(c)(3) of the Code.

Conclusion

A significant portion of your activities are operated for social and recreational purposes. You have not shown
how you further any exempt purpose. Therefore, you are not organized and operated exclusively for an exempt
purpose and do not meet the standards of exemption under Section 501(c)(3) of the Code. Donations to you are
not deductible to donors.

If you agree

If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from
you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on
your income tax filing requirements.

If you don't agree
You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:

* Your name, address, employer identification number (EIN), and a daytime phone number
* A statement of the facts, law, and arguments supporting your position
* A statement indicating whether you are requesting an Appeals Office conference
* The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization or your authorized representative
* The following declaration:
For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, and such facts are true, correct,
and complete

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so,
we'll continue to process your case considering the information you provided. If you haven't given us a basis
for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information
in Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the
law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)).

Where to send your protest
Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

U.S. mail:                                  Street address for delivery service:
Internal Revenue Service                    Internal Revenue Service
EO Determinations Quality Assurance         EO Determinations Quality Assurance
Mail Stop 6403                              550 Main Street, Mail Stop 6403
PO Box 2508                                 Cincinnati, OH 45202
Cincinnati, OH 45201

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you
fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-
pubs or by calling 800-TAX-FORM (800-829-3676). If you have questions, you can contact the person listed at
the top of this letter.

Contacting the Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your
taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or if you've tried but haven't
been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS
will do everything possible to help you. Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements